I'm an entrepreneur, angel investor, venture capitalist, author and philanthropist. Most recently, I am the founder of Grow America, an organization dedicated to helping business builders nationwide and worldwide. I have an MBA and forty years of business experience as a CEO. I have launched ten companies. Four were failures. MarketStar, Island Park Investments and Mercato Partners are home runs. I currently have sixty investments in emerging start up firms. I know how to launch, grow and sell a business. I write columns on a range of entrepreneurial topics to teach and guide visionaries to realize their business dreams. I am passionate about building strong corporate cultures and coaching the next generation of exceptional leaders.

The Internet is Killing My Business!

What should shop owners and employees do? Particularly during the holiday selling season, burgeoning Internet sales are destroying the traditional business models for many small business retailers across America. It began to happen a few short years ago with most brick and mortar shops feeling confident they could survive this disruptive innovation forever.

For many small business owners, the Internet jugarnaut is bleeding them dry

“Loyal customers will never desert us,” they proclaimed. Sadly their view was more hope than fact and little by little, web sales began to erode their revenues and profits.

I know exactly how they feel. Back in 1997, I sat at a banquet table next to a young man named Jeff Bezos, a fellow Ernst & Young entrepreneurial winner from Seattle. “Jeff,” I asked, “Please tell me about your business. What do you do?”

Boy did I underestimate this young man's good idea! Alan Hall and Jeff Bezos, Nov. 30, 2012, Utah Technology Council Hall of Fame (Photo courtesy of Utah Technology Council)

“I have started a new business called Amazon. We sell books over the Internet,” he explained.

“Really?” I said.

I then turned to my wife and prophesied that he would be out of business within the space of two years. “Who,” I boasted privately, “would ever want to buy books over the web?” We all visit our favorite bookstores when we want to buy books. We’ve done it for decades. Why does he think we will change our buying behavior?

Now, when my wife sees press about Amazon and Mr. Bezos she laughs. “Boy, Alan, were you wrong.” Wrong indeed. Jeff not only sells millions of books but everything else a shopper wants to buy. He is also Fortune Magazine’s Businessman of the Year.

This past week a local retailer called me on the phone asked, “What can I do?”

“Local shoppers don’t buy from me anymore,” he said. “They would rather buy online. Alan, there is no way I can compete with web retailers on price. They can sell the very same products I sell for less than my wholesale price. Even worse, their selection of products is vast. My offerings are limited. Furthermore, manufacturers who traditionally sold only to us are now selling directly to our customers. In effect, they have cut us out of the deal.”

“At first I was furious about this change, then very disappointed and now deeply saddened,” he said. “I understand why this has happened. I get it. But I’m not happy about it.”

“I have given up on selling products and have moved to offering more value-added services such as personal training and informative classes. But frankly, this won’t cut it. I’ve done the math and I can’t see how we can survive. I’ve talked with fellow retailers about the situation and we all share the same dilemma with no answer in sight. Alan, what should I do? What are my options?”

I told my friend that in many ways, today’s businesses are like US Steel, a company that fell from pre-eminent world producer of steel products to just tenth place. What happened? Nucor, a reinvented company entered the steel industry with new cost saving technology, lower prices and low end products that US Steelhad ignored, and by and by replaced the financial juggernaut. It happened ever so slowly, until on one dark morning, the biggest steel manufacturer on earth was no longer the king of American industry and shrank from 250,000 workers to a mere 50,000.

Many small U.S. retailers are in the same sinking boat with no life jackets. In so many ways, selected groups of retail shops are the dinosaurs of our lifetime.

That’s the bad news. There are options, however, shop owners and their crews could consider:

The Internet model is a disaster for many small businesses--but there are a few smart strategies they can pursue

A) Stay with your business until the bitter end; then retire. Hopefully you have been wise and will have saved enough money to live a comfortable life; buy a 5th wheeler; take a cruise, and see the world. You deserve it. There is no shame in this approach. It’s been the approach of many great business leaders in the past. For employees, be ready to find new employment before the doors close.

B) Develop a sustaining business model. Find and develop unique value added services that will attract, retain and grow a loyal customer base. Talk to your present customers to learn what might be of interest to them. Or, as Steve Jobs would have done, surprise them with a novel idea they hadn’t even considered. Current employees are also very savvy business people. If I were the shop owner, I would sit in council with them to discovery what else might be done to survive and prosper.

C) Prepare to exit your business in the near term. In the process of doing this, find a new business opportunity to pursue. Given that you know how to operate a successful business, find a market niche with sufficient potential customers that will want to buy from you. This approach requires market research and a well-developed business plan.

Once again, I would gather my finest employees around me to discuss the future and the opportunities they see as attractive. This is the model I hope most small business owners will take. Proprietors and time-tested employees should work together to launch new businesses and to save and create new jobs. Keep in mind that America needs you to get back in the game as soon as possible. Never forget that there will always be opportunities to establish a new business. So don’t despair and quit. Quitting is not in your nature, nor in the hearts of your faithful employees.

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Hi, I am a fan of option B, the sustaining business model. if you have an existing business, it can evolve to meet changing needs of today’s customers. Sure Amazon (and others) have annexed much of the commodity goods business (books, consumer electronics and the like). and where Amazon (and others) have been strong is with goods requiring little or no hands-on shopper experience and little or no related services (training, customization, garment fit, installation, and the like). Worth considering for option B, the sustaining business model, perhaps your business morphs into a more hands-on, higher-end business with more customer touch.

Hubbert, I love the way you are thinking! Many of these businesses have the wherewithal to pivot and succeed. I am working with many such organizations within my own investment portfolio and through the services and programs we’ll be offering through Grow America soon. Stay tuned. And I welcome a continued dialogue on this point. Thanks very much for your note! Regards, Alan

RockGuitar, you are right; they can’t compete. But I would differ with you on the conclusion that in every case it means “they are screwed.” But they will clearly not succeed by continuing to do what they have done until now. What about training? Performances? A business model that is centered on individual services or care. There are other options. Hopefully closing up business is the very last item on the possibilities list. Thanks for your remark. Regards, Alan

For myself, after witnessing and experiencing what is happening, I have quit shopping at amazon and walmart.

It is not that I don’t like the pricing and selection that they offer.

It is because as more and more consolidation happens, more and more of our people will find themselves without jobs and more of our businesses will find themselves without customers and this is destroying the very humanity that we seek to achieve.

My own efforts to get people to understand can be found at Keep America At Work and I am glad that you are asking these questions because we need to go back to our basics and understand that every action has a equal and opposite reaction and if we want strong, vibrant communities with opportunity for all, we need to get back to the community level

Virgil – I agree with you completely that the change we seek needs to happen at the community level. It’s the foundation of our programs that I am advancing through Grow America as well. You can check it out at www.growam.com, and there are more programs I’ll be unveiling there shortly, all of them free of charge to the entrepreneurs. Thank you so much for your insightful remarks. Regards, Alan

Julius – you raise some good points – but I do know many small business owners who’ve done their best to adapt and invest in the changes the internet has brought, and it has not been enough. These are the ones who will need to consider the options I’ve offered. Thanks very much for your note – and I would trust and expect that your SEO business must be doing incredibly well. Regards, Alan

Alan – thank you yes it does very well , any small business can have a site built and compete on the web , the issue is invest what ?

I have found very little interest in doing it “correctly ” , their level of commitment and lack of forward thinking creates a less then level playing field for them not my firm .

We have seen a local car dealer with 6 major car lots spending 50,000 a month on newspaper ads and 2000 at auto trader , yet has no rankings of his own ?

Google stepped into the local ad market and allows small firms to try and out bid each other on pay per click ? that helps only Google 2.00 for Orlando auto dealers is not going to bring back a high ROI .

They need to build a site rank on their own for 100 terms so they can expand their business and compete outside the 20 miles radius they are in now.

I have ranked one firm that sold BMX bike parts on a local level that was then acquired for 750,000 by a much larger firm, their in investment was 50,000 to my firm .

This is about branding their name so that it is seen not only by more people but adds value by giving the site and firm a prime location from which to be seen , thats the word here location .

The old school thinking is dying or dead their future clients are online now not in the Yellow pages or in a flyer, print is dying this venue you and I share here is what will be used to expand and grow a small firm local or not .